Ten days ago, we showed that sometimes even the great maestro is powerless to fight deflation, particularly when it comes to the prevailing equilibrium price of his just released book "The Map And The Territory" where it seems there is a bit more supply than demand.

So when even cutting prices doesn't work what is a former Fed chairman, his ramblings roundly ignored by everyone when it was freely dispensed, and certainly now, when one has to pay for it, to do? Why condense the entire book in an essay and publish it for free in the Council of Foreign Relations Foreign Affairs website, of course.

But while we leave it to everyone's supreme amusement to enjoy the Maestro's full non-mea culpa essay, we will highlight Greenspan's two most amusing incosistencies contained in the span of a few hundred words.

On one hand the former Chairman admits that "The financial crisis [...] represented an existential crisis for economic forecasting. The conventional method of predicting macroeconomic developments -- econometric modeling, the roots of which lie in the work of John Maynard Keynes -- had failed when it was needed most, much to the chagrin of economists."

On the other, his solution is to do... more of the same: "if economists better integrate animal spirits into our models, we can improve our forecasting accuracy. Economic models should, when possible, measure and forecast systematic human behavior and the tendencies of corporate culture.... Forecasters may never approach the fantasy success of the Oracle of Delphi or Nostradamus, but we can surely improve on the discouraging performance of the past."

So, Greenspan's solution to the failure of linear models is to... model animal spirits, or said otherwise human irrationality. Brilliant.

It is good to know that at least the man who unleashed the biggest credit bubble on the world has learned from the lessons of the past three bubble bursts. Oh wait. He has not learned a single thing.

And then some wonder why the general public no longer has any faith in either the economy or the markets: with central planners - full of hubris and lacking any ability to learn and process historical events - like this one, an epic crash, one that is bigger than all previous ones combined, is absolutely assured.

It was a call I never expected to receive. I had just returned home from playing indoor tennis on the chilly, windy Sunday afternoon of March 16, 2008. A senior official of the U.S. Federal Reserve Board of Governors was on the phone to discuss the board’s recent invocation, for the first time in decades, of the obscure but explosive Section 13(3) of the Federal Reserve Act. Broadly interpreted, that section empowered the Federal Reserve to lend nearly unlimited cash to virtually anybody: in this case, the Fed planned to loan nearly $29 billion to J.P. Morgan to facilitate the bank’s acquisition of the investment firm Bear Stearns, which was on the edge of bankruptcy, having run through nearly $20 billion of cash in the previous week.

The demise of Bear Stearns was the beginning of a six-month erosion in global financial stability that would culminate with the failure of Lehman Brothers on September 15, 2008, triggering possibly the greatest financial crisis in history. To be sure, the Great Depression of the 1930s involved a far greater collapse in economic activity. But never before had short-term financial markets, the facilitators of everyday commerce, shut down on a global scale. As investors swung from euphoria to fear, deeply liquid markets dried up overnight, leading to a worldwide contraction in economic activity.

The financial crisis that ensued represented an existential crisis for economic forecasting. The conventional method of predicting macroeconomic developments -- econometric modeling, the roots of which lie in the work of John Maynard Keynes -- had failed when it was needed most, much to the chagrin of economists. In the run-up to the crisis, the Federal Reserve Board’s sophisticated forecasting system did not foresee the major risks to the global economy. Nor did the model developed by the International Monetary Fund, which concluded as late as the spring of 2007 that “global economic risks [had] declined” since September 2006 and that “the overall U.S. economy is holding up well . . . [and] the signs elsewhere are very encouraging.” On September 12, 2008, just three days before the crisis began, J.P. Morgan, arguably the United States’ premier financial institution, projected that the U.S. GDP growth rate would accelerate during the first half of 2009. The pre-crisis view of most professional analysts and forecasters was perhaps best summed up in December 2006 by The Economist: “Market capitalism, the engine that runs most of the world economy, seems to be doing its job well.”

What went wrong? Why was virtually every economist and policymaker of note so blind to the coming calamity? How did so many experts, including me, fail to see it approaching? I have come to see that an important part of the answers to those questions is a very old idea: “animal spirits,” the term Keynes famously coined in 1936 to refer to “a spontaneous urge to action rather than inaction.” Keynes was talking about an impulse that compels economic activity, but economists now use the term “animal spirits” to also refer to fears that stifle action. Keynes was hardly the first person to note the importance of irrational factors in economic decision-making, and economists surely did not lose sight of their significance in the decades that followed. The trouble is that such behavior is hard to measure and stubbornly resistant to any systematic analysis. For decades, most economists, including me, had concluded that irrational factors could not fit into any reliable method of forecasting.

Financial firms believed that if a crisis developed, the insatiable demand for exotic products would dissipate only slowly. They were mistaken.

But after several years of closely studying the manifestations of animal spirits during times of severe crisis, I have come to believe that people, especially during periods of extreme economic stress, act in ways that are more predictable than economists have traditionally understood. More important, such behavior can be measured and should be made an integral part of economic forecasting and economic policymaking. Spirits, it turns out, display consistencies that can help economists identify emerging price bubbles in equities, commodities, and exchange rates -- and can even help them anticipate the economic consequences of those assets’ ultimate collapse and recovery.

(Ib Ohhlson)

SPIRITS IN THE MATERIAL WORLD

The economics of animal spirits, broadly speaking, covers a wide range of human actions and overlaps with much of the relatively new discipline of behavioral economics. The study aims to incorporate a more realistic version of behavior than the model of the wholly rational Homo economicus used for so long. Evidence indicates that this more realistic view of the way people behave in their day-by-day activities in the marketplace traces a path of economic growth that is somewhat lower than would be the case if people were truly rational economic actors. If people acted at the level of rationality presumed in standard economics textbooks, the world’s standard of living would be measurably higher.

From the perspective of a forecaster, the issue is not whether behavior is rational but whether it is sufficiently repetitive and systematic to be numerically measured and predicted. The challenge is to better understand what Daniel Kahneman, a leading behavioral economist, refers to as “fast thinking”: the quick-reaction judgments on which people tend to base much, if not all, of their day-to-day decisions about financial markets. No one is immune to the emotions of fear and euphoria, which are among the predominant drivers of speculative markets. But people respond to fear and euphoria in different ways, and those responses create specific, observable patterns of thought and behavior.

Perhaps the animal spirit most crucial to forecasting is risk aversion. The process of choosing which risks to take and which to avoid determines the relative pricing structure of markets, which in turn guides the flow of savings into investment, the critical function of finance. Risk taking is essential to living, but the question is whether more risk taking is better than less. If it were, the demand for lower-quality bonds would exceed the demand for “risk-free” bonds, such as U.S. Treasury securities, and high-quality bonds would yield more than low-quality bonds. It is not, and they do not, from which one can infer the obvious: risk taking is necessary, but it is not something the vast majority of people actively seek.

The bounds of risk tolerance can best be measured by financial market yield spreads -- that is, the difference between the yields of private-sector bonds and the yields of U.S. Treasuries. Such spreads exhibit surprisingly little change over time. The yield spreads between prime corporate bonds and U.S. Treasuries in the immediate post?Civil War years, for example, were similar to those for the years following World War II. This remarkable equivalence suggests long-term stability in the degree of risk aversion in the United States.

Another powerful animal spirit is time preference, the propensity to value more highly a claim to an asset today than a claim to that same asset at some fixed time in the future. A promise delivered tomorrow is not as valuable as that promise conveyed today. Investors experience this phenomenon mostly through its most visible counterparts: interest rates and savings rates. Like risk aversion, time preference has proved remarkably stable: indeed, in Greece in the fifth century BC, interest rates were at levels similar to those of today’s rates. From 1694 to 1972, the Bank of England’s official policy rate ranged from two to ten percent. It surged to 17 percent during the inflationary late 1970s, but it has since returned to single digits.

Time preference also affects people’s propensity to save. A strong preference for immediate consumption diminishes a person’s tendency to save, whereas a high preference for saving diminishes the propensity to consume. Through most of human history, time preference did not have a major determining role in the level of savings, because prior to the late nineteenth century, most people had to consume virtually all they produced simply to stay alive. There was little left over to save even if people were innately inclined to do so. It was only when the innovation and productivity growth of the Industrial Revolution freed people from the grip of chronic starvation that time preference emerged as a significant -- and remarkably stable -- economic force. Consider that although real household incomes have risen significantly since the late nineteenth century, average savings rates have not risen as a consequence. In fact, during periods of peace in the United States since 1897, personal savings as a share of disposable personal income have almost always stayed within a relatively narrow range of five to ten percent.

THE JESSEL PARADOX

In addition to the stable and predictable effects of time preference, another animal spirit is at work in these long-term trends: “conspicuous consumption,” as the economist Thorstein Veblen labeled it more than a century ago, a form of herd behavior captured by the more modern idiom “keeping up with the Joneses.” Saving and consumption reflect people’s efforts to maximize their happiness. But happiness depends far more on how people’s incomes compare with those of their perceived peers, or even those of their role models, than on how they are doing in absolute terms. In 1995, researchers asked a group of graduate students and staff members at the Harvard School of Public Health whether they would be happier earning $50,000 a year if their peers earned half that amount or $100,000 if their peers earned twice that amount; the majority chose the lower salary. That finding echoed the results of a fascinating 1947 study by the economists Dorothy Brady and Rose Friedman, demonstrating that the share of income an American family spent on consumer goods and services was largely determined not by its income but by how its income compared to the national average. Surveys indicate that a family with an average income in 2011 spent the same proportion of its income as a family with an average income in 1900, even though in inflation-adjusted terms, the 1900 income would represent only a minor fraction of the 2011 figure.

Such herd behavior also drives speculative booms and busts. When a herd commits to a bull market, the market becomes highly vulnerable to what I dub the Jessel Paradox, after the vaudeville comedian George Jessel. In one of his routines, Jessel told the story of a skeptical investor who reluctantly decides to invest in stocks. He starts by buying 100 shares of a rarely traded, fly-by-night company. Surprise, surprise -- the price moves from $10 per share to $11 per share. Encouraged that he has become a wise investor, he buys more. Finally, when his own purchases have managed to bid the price up to $30 per share, he decides to cash in. He calls his broker to sell out his position. The broker hesitates and then responds, “To whom?”

Classic market bubbles take shape when herd behavior induces almost every investor to act like the one in Jessel’s joke. Bears become bulls, propelling prices ever higher. In the archetypal case, at the top of the market, everyone has turned into a believer and is fully committed, leaving no unconverted skeptics left to buy from the first new seller.

That was, in essence, what happened in 2008. By the spring of 2007, yield spreads in debt markets had narrowed dramatically; the spread between “junk” bonds that were rated CCC or lower and ten-year U.S. Treasury notes had fallen to an exceptionally low level. Almost all market participants were aware of the growing risks, but they also knew that a bubble could keep expanding for years. Financial firms thus feared that should they retrench too soon, they would almost surely lose market share, perhaps irretrievably. In July 2007, the chair and CEO of Citigroup, Charles Prince, expressed that fear in a now-famous remark: “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

Financial firms accepted the risk that they would be unable to anticipate the onset of a crisis in time to retrench. However, they thought the risk was limited, believing that even if a crisis developed, the seemingly insatiable demand for exotic financial products would dissipate only slowly, allowing them to sell almost all their portfolios without loss. They were mistaken. They failed to recognize that market liquidity is largely a function of the degree of investors’ risk aversion, the most dominant animal spirit that drives financial markets. Leading up to the onset of the crisis, the decreased risk aversion among investors had produced increasingly narrow credit yield spreads and heavy trading volumes, creating the appearance of liquidity and the illusion that firms could sell almost anything. But when fear-induced market retrenchment set in, that liquidity disappeared overnight, as buyers pulled back. In fact, in many markets, at the height of the crisis of 2008, bids virtually disappeared.

FAT TAILS ON THIN ICE

Financial firms could have protected themselves against the costs of their increased risk taking if they had remained adequately capitalized -- if, in other words, they had prepared for a very rainy day. Regrettably, they had not, and the dangers that their lack of preparedness posed were not fully appreciated, even in the commercial banking sector. For example, in 2006, the Federal Deposit Insurance Corporation, speaking on behalf of all U.S. bank regulators, judged that “more than 99 percent of all insured institutions met or exceeded the requirements of the highest regulatory capital standards.”

What explains the failure of the large array of fail-safe buffers that were supposed to counter developing crises? Investors and economists believed that a sophisticated global system of financial risk management could contain market breakdowns. The risk-management paradigm that had its genesis in the work of such Nobel Prize–winning economists as Harry Markowitz, Robert Merton, and Myron Scholes was so thoroughly embraced by academia, central banks, and regulators that by 2006 it had become the core of the global bank regulatory standards known as Basel II. Global banks were authorized, within limits, to apply their own company-specific risk-based models to judge their capital requirements. Most of those models produced parameters based only on the last quarter century of observations. But even a sophisticated number-crunching model that covered the last five decades would not have anticipated the crisis that loomed.

Mathematical models that calibrate risk are nonetheless surely better guides to risk assessment than the “rule of thumb” judgments of a half century earlier. To this day, it is hard to find fault with the conceptual framework of such models, as far as they go. The elegant options-pricing model developed by Scholes and his late colleague Fischer Black is no less valid or useful today than when it was developed, in 1973. But in the growing state of euphoria in the years before the 2008 crash, private risk managers, the Federal Reserve, and other regulators failed to ensure that financial institutions were adequately capitalized, in part because we all failed to comprehend the underlying magnitude and full extent of the risks that were about to be revealed as the post-Lehman crisis played out. In particular, we failed to fully comprehend the size of the expansion of so-called tail risk.

“Tail risk” refers to the class of investment outcomes that occur with very low probabilities but that are accompanied by very large losses when they do materialize. Economists have assumed that if people acted solely to maximize their own self-interest, their actions would produce long-term growth paths consistent with their abilities to increase productivity. But because people lacked omniscience, the actual outcomes of their risk taking would reflect random deviations from long-term trends. And those deviations, with enough observations, would tend to be distributed in a manner similar to the outcomes of successive coin tosses, following what economists call a normal distribution: a bell curve with “tails” that rapidly taper off as the probability of occurrence diminishes.

Those assumptions have been tested in recent decades, as a number of once-in-a-lifetime phenomena have occurred with a frequency too high to credibly attribute to pure chance. The most vivid example is the wholly unprecedented stock-price crash on October 19, 1987, which propelled the Dow Jones Industrial Average down by more than 20 percent in a single day. No conventional graph of probability distribution would have predicted that crash. Accordingly, many economists began to speculate that the negative tail of financial risk was much “fatter” than had been assumed -- in other words, the global financial system was far more vulnerable than most models showed.

In fact, as became clear in the wake of the Lehman collapse, the tail was morbidly obese. As a consequence of an underestimation of that risk, financial firms failed to anticipate the amount of additional capital that would be required to serve as an adequate buffer when the financial system was jolted.

MUGGED BY REALITY

The 2008 financial collapse has provided reams of new data on negative tail risk; the challenge will be to use the new data to develop a more realistic assessment of the range and probabilities of financial outcomes, with an emphasis on those that pose the greatest dangers to the financial system and the economy. One can hope that in a future financial crisis -- and there will surely be one -- economists, investors, and regulators will better understand how fat-tail markets work. Doing so will require better models, ones that more accurately reflect predictable aspects of human nature, including risk aversion, time preference, and herd behavior.

Forecasting will always be somewhat of a coin toss. But if economists better integrate animal spirits into our models, we can improve our forecasting accuracy. Economic models should, when possible, measure and forecast systematic human behavior and the tendencies of corporate culture. Modeling will always be constrained by a lack of relevant historical precedents. But analysts know a good deal more about how financial markets work -- and fail -- than we did before the 2008 crisis.

The halcyon days of the 1960s, when there was great optimism that econometric models offered new capabilities to accurately judge the future, are now long gone. Having been mugged too often by reality, forecasters now express less confidence about our abilities to look beyond the immediate horizon. We will forever need to reach beyond our equations to apply economic judgment. Forecasters may never approach the fantasy success of the Oracle of Delphi or Nostradamus, but we can surely improve on the discouraging performance of the past.

Interesting to me when the Fed head can't effectively interpret their own data/charting, despite the clear and obvious warning signs. Tells me once again that it's far more likely he's just blowing smoke out of his ass, and claiming ignorance/"nobody could have seen this coming" when the simpler/more rational answer is just that he's a straight up corrupt bastard that intended for everything that did happen, to happen.

Another way of thinking of this: Look at the Fed funds rate starting in 2005 - 2007. Look at how strongly and quickly that moved up. Then consider the subsequent results. You would have to be a complete idiot not to rationally consider that moving the rate from 1% up to 5.25%, when the vast majority of the economic growth during that time was due to a real estate boom (which is very strongly tied to that rate) would probably crash and burn that boom.

As "Chief Liar Poker" he should have just stayed put in the book review section. His hand-picked "I've got an even better hand" has truly deceived them all...and now rides off into the "I just built the ultimate Financial WMD and just detonated it" sunset. The madness is To Be Continued like some "very important episode of a very unimportant television program."

I bought his bio, his first book.
I'm not formally well educated, and informally a over read train wreck. What struck me was that Greenspan was dumb. Clueless. A hack. And this was from his own writtings. A best he was/is a high functioning clerk.
Chauncy Gardner of finance.
Also, his wife, Andrea Mitchell is Riddler spooged face pancake ugly.

yeah you do that..."today we modeled the financial equivalent of the impact of Mt Fuji erupting on our balance and discovered this is GREAT!" The wise ones dug deep in those (hopefully now dormant) Volcanos and got the gold/silver/copper/ etc, etc out of there. I mean has this clown ever even heard of the term "cash flow" before? On the other hand great job being the discounting mechanism. "I can now price in the bankruptcy of pretty much Government itself into my financial calculations" you Randian Superhero you! He'd do better (along with all the morons jumping into this ongoing volcano...there has to be one virgin left somewhere! find her dammit! find her now!) hanging a Right onto LSD and pulling over to the Family that that single handely built the Park by the Lake with a sign and coffee can in hand and say "phuck you give me your money."

Irrationality? What irrationality? When you set the interest rate to 1%, it's completely rational to borrow as much as possible and try to make money with it. It's also rational to panic sell when your huge pile of debt goes from 1% interest to 2% interest. It's also a completely expected outcome that it would crash the stock market when everyone is panic selling at the same time. He attributes this to irrational human behavior when it really just means he's an idiot who doesn't understand incentives.

Exactly, a few years ago he railed against "Irrational Exhuberance" and now he wants future economic models to include "Animal Instints". LOL! You can't make this shit up! And these are supposed to be the smartest people in the room according to the talking heads on tv. It's precisely why I don't buy into conspiracy theories about the Fed. It's obvious these people just don't have a fucking clue, and are just sociopaths. They are only capable of knee jerk reactions towards anything that is a perceived as a threat to their own insane world. Like a true sociopath, they continually grasp at straws that will sacrifice everything that a real world needs to survive and thrive, in a selfish misguided attempt to protect their illusionary world.

Animal spirits? Economists would be able to build more accurate models if they plied a human animal with spirits and, after his blood alcohol level reached .20%*, asked him to predict what the economy will look like in one, three, and five years' time.

*according to the Clemson campus guide, at .20% "You may feel confused, dazed or otherwise disoriented. You need help to stand up or walk. If you hurt yourself at this point, you probably won’t realize it because you won’t feel pain. Even if you are aware that you’ve injured yourself, you probably won’t do anything about it. At this point you may experience nausea and start vomiting. Your gag reflex is impaired, so you could choke if you throw up. Since blackouts are likely at this level, you may not remember any of this."

If you really want to fix the centrally planned economy, simply model it after the one party two party political system by taking away the people's right to choose anything other than the choices preordained by the Bankster Elite. The banksters and politicians can decide what goods and services that 'we the peons' "really" need and the peons can viciously debate the subtle differences between the products and have yet another outlet to satisfy their insatiable desire to define, label, and divide themselves. MOAR WINNING.........

"It is good to know that at least the man who unleashed the biggest credit bubble on the world has learned from the lessons of the past three bubble burst. Oh wait. He has not learned one single thing."

Greenspan learned it at least as far back as 1967, when he wrote that 1920's FED policy lead into the Great Depression. The right thing would have been not to replicate that policy. Greenspan doubled down on it. He got admiration as being The Maestro, while the policy pumped up the market and economy. Likewise, Bernanke is getting admiration for double humping the stock market up to 1800. That's what matters.

"Bears become bulls, propelling prices ever higher. In the archetypal case, at the top of the market, everyone has turned into a believer and is fully committed, leaving no unconverted skeptics left to buy from the first new seller."

"The demise of Bear Stearns was the beginning of a six-month erosion in global financial stability that would culminate with the failure of Lehman Brothers on September 15, 2008"

This is the problem. The erosion of financial stability didn't begin with Bear Stearns, it began with zero down, interest only, negatively amortized, liar loans, to anyone who could fog a mirror. Also, the SEC had given the investment banks leverage waivers in 2004. Financial stability was long gone before Bear Stearns went under.

It actually began decades before that, but the final trigger that unleased the financial armeggedon that is engulfing the world was killing Glass-Steagal. That was the crossing of the Rubicon and there is no going back short of revolution.

Alan Greenspan sets my financial education back 10 years just hearing his voice.." irrational exuberance" haunts me to this day...

How a criminal type can be allowed to make and spring a trap, get away with it, and be called smart is beyond me yet here we are.

He is in on it or criminally negligent yes/no??

At least he owes some economics majors a prorate as most economic theory is no longer working and they overpaid due to the fraud of thinking there was more to learn than regulations compliance. ..yes/no..

The basic tenet of the philosophy of economics is correct, that all people act (attempt) to maximize their self interest. However, the science of economics is incorrect because it attempts to force qualitative things into quantitative models. Humans are intrinsically and extrinsically motivated. The science of economics can only measure the extrinsic part... All of the models are flawed because we do not (and cannot presently) know how everyone is motivated. [it's also no coincidence that they completely underestimate the lengths rational actors will go to in order to maximize self interest].

Of course, all of this is presuming that the science of economics is something more than finance or psychology, but it's not... I digress...

Would seem to be much easier to 'model' Central Banker behavior than human behavior. I mean how many Central Bankers are there and how different are their backgrounds. The Central Banker will be an academic ideologue, full of hubris and unable to to admit he doesn't understand the real world. He/She will do whatever the conventional playbook calls for even if the conventional playbook bears no relation to reality. The will do whatever benefits most the financial industry and government. Model that and you've can predict monetary policy 100%

What you describe is called a sociopath. Your definition explains why sociopaths not only dominate financial institutions, but virtually all institutions of power. Today, socipoaths are TPTB. The only way you can stop a sociopath is using absolute enforcement of the rule of law. Real law, like a constitution, devised by the will of real people, and not corrupted by sociopaths. Sadly, we are a long way from that reality now.

sociopathy is a diagnosable issue... best left to medical professionals. It also happens to be rare, although they're starting to believe there are more sociopaths out there than once thought... but I think the jury is still out. Needless to say, you can have a mental health professional go an entire career without ever coming across a sociopath in the wild...

Why introduce sociopathy into the mix, when simple self interest will do?

He is basically saying that the lower classes' animal spirits' kicked in and put their, the upper classes, theft machine in jeopardy--If only the lower-classes would just keep producing and dying silently for them, all would be well.

Yes its called animal spirits because calling it human spirits would make them guilty by association. Its a phantom-objectification that subtly places reason and quantification above the existential nature of reality.

I think you hit the nail on the head. Blaming animal spirits is like blaming the lower class. They're animals! They are unrefined. They are unwashed, unclean. And they are definetly not a sophisticated investor, a distinguished gentleman or otherwise known as or to be confused with a member of the upper class.

Reminds me about the whole "physics" based mumbo jumbo as well... jim rickards on a max keiser show was a good example I saw. You would. Think he was inside the detection chamber of the large haydron collider with his whole approach and explanations. Too many want to make this kabuki dance over seashell piles and bragging rights more than it is by association with some aspects of reality.

SigmundFreud would be creaming to study current states of mind in those circles tho...totally creaming...

Keynes is dead. Keynesianism is dead. The dead men walking in the M. Eccles building and in academia need to look around for a fucking different model already. One that doesn't require a private central bank run by criminals dictating economic activity in the respective countries.

Who said ecomonics was morality? With no morality it does become who is in and who is out as we have had a full class schedule of watching the thief wonk class at play to shake out the finer details and polish the concept results as observed. Findings conclude... (insert your personal story of being shafted here)

Now there is only Zool... or is it Zod? Geez with all these overlords I need new kneepads.....again....

In the run-up to the crisis, the Federal Reserve Board’s sophisticated forecasting system did not foresee the major risks to the global economy. Nor did the model developed by the International Monetary Fund, which concluded as late as the spring of 2007 that “global economic risks [had] declined” since September 2006 and that “the overall U.S. economy is holding up well . . ."

Maybe they should have looked at the price of oil, which ran up from January 2007, to July, 2008

This quote from AG looks like a straw man "if economists better integrate animal spirits into our models, we can improve our forecasting accuracy". AG may be trying to use that strawman to confuse people with. He may either be trying to manufacture a straw man to blame an entity that has no culpability and can't be held accountable in any way and to cover the tracks of actions past, or he may be looking to cloud mens minds about the present and the future so as to manipulate the outcomes as desired.

So in effect AG wants a straw man that can't readily be quantified and is subject to emotion and feelings and whimsy with his "animal spirits". Blaming animal spirits when there are several known cases of large scale market manipulations that have been pretty much proven is disingenuinous in attempting to lay the blame to say the least. In courts and public opinion, you can try to hide behind AS. But as the Canadian band "Rush" can be quoted, "You can twist perceptions, but reality won't budge".

However, if you want accurate models, look to engineering. When electrical circuits are modeled, there is no equation or factors which account for the desire of the circuits designer or builders. The equations are all cold hard math and science and they are accurate to a T. The inputs are defined, the circuit is diagrammed with parts with known tolerances, the software model does the calculations, and the output work (in light, heat, sound, motion or displacement of an object, or radio energy transmitted) is extremely accurate. The calculations work every time.

So the real thought I would like you to perceive, is why AG and many of the so called economists can't accurately define what the inputs are to the economic model, and what the relationships are between those inputs, and the outputs. In electronics, it's easy. Input energy and material comes in. Work is done. And outputs are produced. In essence, isn't that a basic description of how a families economy works, and a cities economy, and states, and countries too? Even the whole world could be considered an "economy" similar to an electric circuit, with known inputs and outputs, just on a larger scale.

If the people at that AG level with so many technical resources available to them and who can afford to pay the best minds handsome amounts of money to accurately look at the "economic system" or "economic engine" and those people can't define and measure, and predict accurately, then they could be hiding something, or just plain old not very good at figuring and their opinions practically worthless or possibly having negative worth! I suspect it's the former explanation because when you have that much money and power at your disposal, you can afford the best analytical minds to help you figure out what the truth really is, and it's in the best interest of those at the top and TPTB to accurately account for and understand their bailiwicks and their circles of influence and circles of being influenced upon. I can't see them leaving themselves open to playing the fool in these matters. So I'm pretty sure they have a good idea of "What's Going On" as Marvin Gaye would put it.

As Fed Speak, and reality diverge, the Fed will likely continue to attempt to lay the blame elsewhere especially if elsewhere can not be found to be culpable in the courts. Expect animal spirits to be getting a lot of press in the coming years.

Oh WilliamBanzia7.......hear my plea!... alan greenspan in an old horse manure cleanup outfit? You know,,, broom, round barrel with wheels little uniform and hat..... soooo many choices for the "animal spirits" he is cleaning up after...

Greenspan is right - human irrationality is non-linear, and should be captured in financial models, but isn't because most people want a simple one-to-one explaination. Martin Armstrong has incorporated non-linear variables, which is one of the reasons informed people listen to what he has to say.

non-mea culpa ... 'bout sums it up right there. Judgeing by the few bits I had the stomach to read, he's sticking to the "no-one saw it coming" story, then has the unmitigated gall to go all preachy with the "fat tails" scenario without so much as a nod to Taleb (I did a page search for the name ... nada!) Oh right, to the economic mainstream, anyone not in the Keynesian Klub just doesn't exist.

Taleb's book WAS A BEST-SELLER YOU SHAMELESS FUCKING BARGAIN BIN FRAUD !!!!!!

The contouring of information and emotion is already highly modeled yes/no? I mean the whole "follow the market" meme is derived from that starting point. No fundamentals, just giant balls of flowing glinty ideas formed into lures.. big fish need big prey as a matter of course. HFT took over as the "seas" died leaving us to make soylent greenspan until......yes/no

This is equivalent to Condeleeza Rice saying years after 9/11 that even if they had the intelligence of an attack, as the national security advisor, she wouldn't have changed a thing. It was really incredible at the time when she said it. And they still made her Secretary of State.

Animal spirits threw off the modeling.

How about you never knew what someone's rationale was? It's not that they're irrational. You just can't read minds.

Kinda makes me think about what the NSA is doing.... there is no reason for the NSA to collect every bit of data about everyone, their most mudane phone calls, emails, facebook posts... it certainly has nothing to do with stopping "terrorist" because they "hate us for our freedoms"... it wouldn't surprise me if these insane people actually think they can collect enough data to actually determine in real time all those rationale/irrational thoughts and motives going on in the collective and use it in some kind of model...

He wants to re-reify the reification of abstractions and phantom-objectifications that brought us to the illusory point of no return. The human spirit is the next target of the great ones, for the human mind was not enough to cage, and when they have destroyed the human spirit, they will come back and blame it on the existential nature of humanity, and we arrive at an abortion of original sin. When in the coming case, it will become "original uselessness". Money is god, reason is the religion, objectification is power, and downwards is the trajectory.

Greenspasm knows better than this. These highfalutin predators always know the theories they float are total nonsense. These theories are designed for one purpose and one purpose only --- to justify their continued power to enslave and destroy everyone and everything else (for their benefit and amusement).

They never mention the most obvious and fundamental facts. Like, for instance:

#1: The entire justification of the federal reserve was to prevent financial dislocations. However, any 200 year chart that shows the 100 years before the federal reserve and the 100 of the federal reserve - shows massively more dislocations and instability in the second 100 years.

Therefore, the justification for the federal reserve is actually one of the best justifications for getting rid of the federal reserve.

They will, of course, never mention this obvious fact.

#2: If these predators had let "the entire financial system cease up" in 2008, the regular business of regular folks would have continued on just fine. People can buy products with cash (or silver, or gold). People can sell products for cash (or silver, or gold). People still get paid. People still spend.

So, what "ceases up"? Answer: LENDING. BORROWING. DERIVATIVES. In other words, the only people who encounter dislocations are... corporations (and a few rich people) who regularly behave in irresponsible ways.

Screw them! They get what they deserve!

These are the exact same predators who for decades have been filtering off a percentage of the wealth produced by everyone, and causing prices for everyone to be higher than they would otherwise be.

-----

So many things Greenspasm says make me so angry... I refuse to waste my time picking apart everything and write another encyclopedia here today. So just suffice it to say that these scumbags sure take us for fools. Too bad some people actually swallow the nonsense these cretins spew. Revolting!

Alan has been twisting himself into knots trying to explain why he either didn't see the global depressiont coming or did and didn't care to mention it when he could have. As a result, his public pronouncements have been getting more and farther out there. Someone should just lead him off the stage and let him bask in his by-gone glory days. Until and unless he comes clean, even if it means saying he was not equipped to handle the job when the crisis was coming upon us, let's everybody just ignore him.

The ONLY reason I would buy that piece of shit book is if I ran out of toilet paper. Hey Greenspan STFU or when we start hanging you fuckers you'll go first. Can't someone shut this goblins mouth permanently? What an asshole. No one with an IQ over 70 would buy that book. Which means all bankers and politicians will buy it.

animal spirits can run out of credit mo fo.
spending borrowed money, what a scam for the banksters
and the hangers on. economics is a scam as are the fin-
antial markets, progressing to finance
of what requires none;
finance was portrayed as a trust, a replacement of trust.
an evolution of trust. then the trust proved to be
an inadequate replacement of trust so here we are.
no trust, no replacement of trust, no law that anyone
need respect.
it is biblical this day,
up to u.
.
didn't steve keen say something about modeling
debt as money into the economics being considered here?
the basic unit goes unintelligible and dipped in fraud
by design and invisible, out of sight.
the fundamental out of reach unknown in the hands and
under the supervision of terrorists, ongoing.

I am of the view that Greenspan is smart but as dumb as a stump innthe things that matter (including his chosen profession, which at its best is merely a new version of biblical prophecy without any rational inputs) or malevolent. Take your pick.

Yeah, as Zero Hedge opines, this is an utterly absurd article by Greenspan!

A better set of answers could come from William K. Black, about the systems of incentives, or disincentives, in order to encourage, or discourage, the degree of CONTROL FRAUD. However, in the real world, there is already a runaway system of the past profits from frauds being reinvested in more frauds in the future, through the funding of the political processes, that got the runaway fascist plutocracy juggernaut going ...

Talking about abstract, psychological, "animal spirits" is BULLSHIT! What has really happened was that the best organized gangs of criminals have covertly taken control over the government of the USA, in order to more and more legalize their own lies, while having those frauds backed up by the legalized violenct enforcments by the government. Greenspan was a figurehead for the organized criminals, the biggest gangsters, the international banksters, that were able to take over almost complete control of the government of the USA, and most of its social institutions, such as the mass media and school systems, through their runaway abilities to take control over the monetary system, and then use that advantage to be able to dominate the funding of everything else, in a vicious spiral of corrupting governments to enable those who benefited from that then empowered to even more corrupt governments!

Greenspan is a professional liar and immaculate hypocrite. It is impossible for me to truly judge from the outside just how self-deluded and self-deceived he really is ... However, judging from his article, I would say that his ability to bullshit himself, while bullshitting others, is of awesomely astronomical proportions. As Mark Twain pointed out, the best liars believe their own lies, which they are able to do because they can operate within a bubble of their own deliberate ignorance and willful blindness.

It should be obvious common sense that privatizing the public "money" supply, so that "money" can be made out of nothing, as debts, is the most utterly insane legalized CONTROL FRAUD there has ever been. There is nothing whatsoever surprising about the psychological incentives of people who can make money out of nothing! Of course, they find every possible excuse to make MOAR of that "money" out of nothing!

However, given the already runaway fascist plutocracy juggernaut system, guys like William K. Black can only write academic articles. They can no longer operate within the real political world to do anything against the runaway social insanities created by the current monetary and taxation systems. So sad, too bad, it looks like it is too fucking late to fix any of these problems now ... especially given that guys like Greenspan can get away with publishing this kind of crap, with perhaps only a few fringe Web sites pointing out how ridiculous, and self-serving, that kind of bullshit really is!

What is really happening is easy to model, as the runaway results of legalized lies, backed by legalized violence, encountering the limits of the abilities of that violence to keep those lies going ... We are nearing changes of state, where the constantly pumping up of force backed frauds has pumped everything up to the point where it breaks through to its own radical change of state ... There is nothing truly "irrational" about that process. No energy is being created out of nothing, nor sent to nothing. Rather, what is happening is simply the paradox of final failure from too much successful CONTROL FRAUD.

We are looking at an economic system which has been so totally controlled by so much fraud, for so long, as mathemagical electronic fiat money, backed up by atomic bombs, that its collapses into chaos could only be probabilistically modeled, as the ways that society as a whole goes through psychotic breakdowns, due to too much legalized lies, backed by legalized violence, controlling what that society did for too long.

Greenspan actually worked for the international banksters towards deliberately destroy the American economy. We are already past the point of no return. Metaphorically speaking, we have already gone past the event horizon into a social black hole. THERE ARE NO "REFORMS" WHICH ARE POLITICAL POSSIBLE ... (Although guys like William K. Black could easily detail what those should be.) We are headed towards runaway social insanities, where the debt slavery system drives its own numbers to become debt insanities. That will then cause even more death insanities to happen. WE ARE HEADED TOWARDS MONETARY REVOLUTION, AS THE ONLY THING LEFT WHICH CAN ACTUALLY HAPPEN ... That is the way that "irrational animal spirits" may have their field day, to play through their models ???

Paradoxically, there is nothing actually "irrational" about the ways that runaway triumphant financial fraud destroys itself. There was nothing "irrational" about each successive increment of the application of the methods of organized crime that were able to legalized more lies, and to back those up with more legalized violence. Each individual step made "sense" to those who benefited from being able to do that ... while none of them worried much about the longer term consequences, and even if some of them did, they would not have been able to stop the triumphant pattern of reinvesting the profit from frauds in more frauds from playing itself through to its "logical" end game of mad self-destruction.

AFTER THAT DRIVES COLLAPSE INTO CHAOS, AND CAUSES DEATH INSANITIES, THEN WE MAY WONDER ABOUT WHATEVER MIGHT BE ON THE OTHER SIDE OF THOSE DEVELOPMENTS ??? HOWEVER, THERE NO LONGER ARE ANY POSSIBLE POLITICAL REFORMS LEFT (AS INDICATED BY GREENSPAN BEING ABLE TO PUMP OUT THIS KIND OF BULLSHIT), AND THUS, THE ONLY "SOLUTIONS" ARE MONETARY REVOLUTIONS, SINCE OUR SOCIETY HAS BECOME COLLECTIVELY TOO INSANE TO DO ANYTHING ELSE THAN GO THROUGH ITS PHASES OF PSYCHOTIC BREAKDOWNS.